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US Cellular: 2H16 CapEx Looking Up After Slow Start

By John Celentano

Principal
Skyline Marketing Group

rp_Celentano-2-300x300.jpgAugust 9, 2016 — US Cellular’s 2016 network expansion activity got off to a slow start in the first half of the year, accounting for only 34 percent of its projected $500 million in full-year capital expenditures (capex).

This conservative investment suggests that capex in the second half of 2016 (2H16) will ramp up sharply each quarter, reaching levels comparable to the previous two years.

 

US Cellular is the fifth largest wireless service provider in the country behind the four national carriers – AT&T Mobility, Verizon Wireless, Sprint, and T-mobile US.

fig 1The company operates in regional tier two and tier three and rural markets covering 32 million people, in licensed markets mainly in the Midwest, parts of the West coast, and in several Eastern states and the Northeast. In all, it covers about 10 percent of the total U.S. population. Additionally, it reaches parts of the country where it is not licensed to operate through roaming agreements with other wireless service providers.

fig 2With 16 per cent market penetration, US Cellular serves nearly 5 million post- and pre-paid customers. The company adds about 200,000 post-paid customers each quarter, growing at a 1 percent compounded rate. Post-paid churn in 2Q16 dropped to 1.2 percent from 1.34 percent a year ago. Even with smartphone penetration at 77 percent of the post-paid customer base, post-paid average revenue per user (ARPU) is down to $47.37 from $53.62 in 2Q15. Consequently, service revenues declined by 8 percent on a year-to-year basis.

A lion’s share, more than 60 percent, of US Cellular’s capex is allocated in the radio access network (RAN) to expand its 4G LTE coverage and prepare the network for voice over LTE (VoLTE) services that serve its own customers and augment roaming agreements. During the past year, the company added 101 new cell sites and built 58 new towers that it owns and operates.

In its Aug. 5 earning call, the company upheld its guidance for 2016e capital spending at $500 million. This level is down 6 percent from $533 in 2015 and has declined at a 12 percent compounded annual growth rate (CAGR) from its peak of $837 million in 2012.

 

fig 3Nonetheless, US Cellular is balancing its capital spending in line with reduced service revenue levels. The company’s capex-to-service revenue, currently at 16 percent, indicates continuing network expansion activity.


 

John Celentano is a principal in Skyline Marketing Group, which provides technology marketing & sales strategy advisory in advanced communications services, and wireless, telecom, data networking infrastructure markets.  Additionally, support is provided for internal positions in market analysis, business development, strategic planning, strategic marketing, product management, product marketing, sales operations.

For more information, go to https://www.linkedin.com/in/john-celentano-4822692